130 F.3d 950 (10th Cir. 1997), 96-5122, Member Services Life Ins. Co. v. American Nat. Bank and Trust Co. of Sapulpa

Docket Nº:96-5122, 96-5183.
Citation:130 F.3d 950
Party Name:MEMBER SERVICES LIFE INSURANCE COMPANY, doing business as Member Service Administrators, as Third Party Administrator of the Liberty Glass Company ERISA Qualified Employee Benefit Plan, Plaintiff-Appellee, v. AMERICAN NATIONAL BANK AND TRUST COMPANY OF SAPULPA, as guardian of William Brooks Balthis, Debra Leanne Balthis, and David Douglas Balthis,
Case Date:December 15, 1997
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit

Page 950

130 F.3d 950 (10th Cir. 1997)


Member Service Administrators, as Third Party Administrator

of the Liberty Glass Company ERISA Qualified Employee

Benefit Plan, Plaintiff-Appellee,



guardian of William Brooks Balthis, Debra Leanne

Balthis, and David Douglas Balthis,



E. Terrill Corley, Thomas F. Ganem, Steven R. Clark,

Bradford J. Williams, and Walter M. Jones,


Nos. 96-5122, 96-5183.

United States Court of Appeals, Tenth Circuit

December 15, 1997

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[Copyrighted Material Omitted]

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Sam T. Allen IV, Loeffler, Allen & Ham, Sapulpa, OK (Sam T. Allen III with him on the briefs), for Defendant-Appellant.

E. Terrill Corley, Corley & Ganem, Tulsa, OK (Thomas F. Ganem with him on the brief), for Defendants-Appellees.

Phil R. Richards, Richards, Paul & Richards, Tulsa, OK (Thomas D. Hird with him on the brief), for Plaintiff-Appellee.

Before SEYMOUR, Chief Judge, EBEL and BRISCOE, Circuit Judges.

SEYMOUR, Chief Judge.

Member Services Life Insurance Company, doing business as Member Services Administrators (MSA), brought this action under section 502(a)(3) of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1132(a)(3), and federal common law to recover payments it made under an ERISA welfare benefit plan to American National Bank and Trust Company of Sapulpa (ANB), the guardian of minor children who were beneficiaries of the plan. MSA claimed the right to recoupment based on the contract as well as on principles of unjust enrichment, restitution, and equitable subrogation. The district court granted summary judgment for MSA, ruling that it was entitled to recovery under an amendment to the plan providing for subrogation. ANB appeals and we reverse.


The underlying facts are undisputed. MSA administers a self-funded ERISA welfare benefit plan established by the Liberty Glass Company. Jeff Balthis, the father of the minor children for whom ANB is the guardian, is an employee of Liberty Glass and his minor children are beneficiaries under the plan. In February 1988, the minor children suffered severe injuries in a fire caused by a BIC lighter, and the plan thereafter paid $570,368.75 in medical expenses incurred by the children. At the time these benefits were paid, the plan did not contain a provision permitting the recoupment of benefits from funds obtained by a beneficiary from a third party tortfeasor. Although the plan from its inception had provisions permitting it to be amended or modified, it had no provision addressing whether such amendments could be given retroactive effect. In October 1988, the plan was amended to add a provision giving MSA a right of recoupment if a beneficiary received money from a negligent third party as a result of injuries for which the plan had paid benefits. The amendment provided that it was retroactively effective as of March 1, 1988.

ANB as guardian of the minor children brought an action against the BIC Corporation on April 1, 1990, alleging that BIC was liable under the doctrine of product liability for the injuries to the children. ANB was represented in its suit against BIC by E. Terrill Corley, Thomas F. Ganem, Stephen R. Clark, and Bradford Williams (the attorneys) pursuant to a court-approved attorney fee contract under which the attorneys were to receive a fee of fifty percent of all amounts collected after the deduction of case expenses. While the lawsuit was pending, MSA made a demand under the 1988 amendment for reimbursement of the medical expenses

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MSA paid on behalf of the children from any judgment or settlement in the suit. The attorneys rejected the claim, pointing out that the amendment upon which MSA relied allowed recoupment from a recovery based on negligence, and the claim against BIC was based only on the theory of product liability. A judgment was entered against BIC on October 26, 1992, for actual and punitive damages, and ANB ultimately recovered $19 million on behalf of the minor children. BIC was held liable solely on the basis of product liability and was specifically found not to have been negligent.

On January 1, 1993, the 1988 amendment was modified to authorize recoupment of any monies received by a beneficiary from a third-party tortfeasor held liable under any theory of law or equity. This amendment required that such funds be held in trust until paid in satisfaction of the plan's right of recoupment, and further provided that the amendment was retroactively effective as of August 1, 1987, the date of the plan's inception. Contemporaneously with the payment of the judgment by BIC, $570,368.75 was placed into escrow pending a determination of MSA's ability to enforce its right of recoupment under the 1993 amendment.

MSA brought the instant action against both ANB and the attorneys to recover the funds placed in escrow, as well as interest and attorneys fees expended in obtaining the funds. Defendants responded that the plan, as a contract between the parties, could not be retroactively amended to deprive the minor children of benefits. As an alternative counterclaim, defendant attorneys asserted that if MSA were awarded the escrowed funds, the attorneys were entitled to fifty percent in accordance with their fee contract. Although MSA recognized that the fee agreement between the attorneys and ANB could generate a claim by the attorneys to some or all of the escrow funds, MSA asserted that its claim was superior to that of both ANB and the attorneys and that it was therefore entitled to the entire amount. MSA also sought an adjudication that the minor children were not entitled to the payment of future benefits from the plan until each child's expenses equaled the amount of the judgment awarded to that child.

The district court ruled in favor of MSA, holding that the 1993 amendment could be applied retroactively to enable MSA to recoup payments paid to the beneficiaries before the amendment was enacted. The court also ruled that MSA's obligation to pay future benefits on behalf of each child would not arise until that child had exhausted the amount of his or her judgment. 1 Finally, the court held that the attorneys were entitled to receive a fee in connection with the escrowed funds. Although the court observed that "if the attorneys had been unsuccessful in prosecuting the state court lawsuit, [MSA] would not receive any recoupment...

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